Workers could be forced off final-salary schemes if they move jobs under plan to revive Britain's pensions

By Adam Uren

PUBLISHED: 04:58 EST, 29 November 2012 | UPDATED: 04:58 EST, 29 November 2012

A suggestion that firms could move workers off their existing final salary pensions if they leave for another employer was made in a government report on how to revive Britain's retirement savings.

It is aimed at encouraging more companies to re-introduce defined benefit (DB) pensions - such as high-end final salary schemes –  but has prompted unease that it could stop workers seeking new jobs elsewhere.

In a proposal published in the Department for Work and Pensions’ ‘Reinvigorating Workforce Pensions’ paper last week, employers could be given the right to force people off a DB scheme when they leave the company.

Pastures new: But will leaving your job also mean waving goodbye to a lucrative pension fund in the future?

Pastures new: But will leaving your job also mean waving goodbye to a lucrative pension fund in the future?

The worker would then be given a lump sum equivalent to the value of their pension pot which they can then put into another, potentially less lucrative, defined contribution (DC) pension scheme in which money is invested rather than guaranteed.

But Peter McDonald, chief actuary at PwC, has said that staff could be reticent to leave a firm if they knew they would be removed from their pension scheme if they found a new job.

He said: ‘The idea of limiting employer’s DB promises to only when the worker is still at the company could lead to unintended consequences.

‘For example, workers are likely to think twice before leaving a job that offers a DB scheme and this could create an unwelcome backlog for many companies.’

 

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The vast majority of final salary or defined benefit schemes, in which an employer promises to pay out a certain amount to a worker each year upon retirement based upon their earnings and time spent at the firm, have been closed to new entrants as they have become increasingly unaffordable due to longer lifespans and volatile markets.

How the plans have been outlined

In a bid to promote a new kind of pension in which risk is shared – referred to as ‘defined ambition’ – the Government wants the employers to shoulder the risk while a worker is employed by them, before the worker takes the risk on upon leaving.

Defined benefit vs defined contribution

The crucial difference between defined benefit and defined contribution is that in the former the employer pledges to deliver a set income in retirement and takes the investment risk on providing it, whereas in the latter, employers pay into pensions but retirement income is entirely at the mercy of stock market performance.

So, should a worker leave a firm for a new job, they would be given a cash lump sum converted to a defined contribution pension scheme amount of equivalent value.

Defined contribution schemes do not guarantee a certain level of income upon retirement, instead the money you pay into it, along with any employer contributions, is invested to give an accumulated sum which can then be used to buy an annuity, or withdraw annually using income drawdown.

The DWP was unable to comment when asked by This is Money whether forcing people off final salary pensions upon leaving a company could prove counter-productive.

It also could not answer as to how the lump sums would be calculated when someone leaves the company, whether it would represent the value at the time they leave, or if it would take into account the added inflation that would accrue between then and their retirement date.

A DWP spokesman said: 'At the moment this is all under discussion. Last week's paper was almost like a progress report, there's quite a lot of detail that is still to be discussed in the coming months.'

 
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As the government made thousands redundant their pensions would be plowed into a dying economy to be sacrificed and made worthless simply to stave off the fateful day of the countries bankruptcy and the total obliteration of the conservative party.Rather like the eu fecklessly hoping that something might 'turn up' and save the day. Well ive news for you 'it won't'. I used to be a conservative voter but its Ukip for me now and any other radical party other than the majors.

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For a lot of people with a DB who are within 10-15 years of retirement, it would actually make more financial sense to resign, go on benefits and secure a guranteed pension, than it would to carry on working and risk losing it all to the stock market, absolutely barmy.

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I presume this will also apply to MPs pensions, as most of them are out of a job every 5 years

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The problem with this suggestion is that the final salary pension only works in a working environment that has not been around for 20 or more years. It is incredibly rare that people stay in the same job more than 5 years at a time, the job for life mentality has gone. - Glostermeteor, London, United Kingdom, 29/11/2012 10:47 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> That's a popular myth actually. The average time spent with a single employer is 7 years and I know a lot more people (in both the public and private sector) in their 40s/50s who have been with the same employer all their working lives than ones who chop and change employer. The government and much of the private sector don't like people to have secure employment so they try and pretend it's the norm to change jobs every 10 minutes. For anyone over 25 and qualified professionals, it isn't.

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In other words steal your pension and give it to the city

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Yet again, this Government, just like the previous ones, are going to pull another rug out from under millions of people like me. My pension is still some way off, already no longer available at 50, now 55, but Its now clear that what I expected, payed for and rely upon will be legally robbed from me.

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You would have to save £625 every single month over 40 years to save £300000 which is what you would need for a pension of £20000 a year. These figures are impossible to the average person, who would find it impossible to save that amount every month.so what I am saying is that all this talk about saving for your pension is a big con, it is impossible and the government knows it!!

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Revive pensions, thats a laugh when they are cutting peoples personal (not state) pensions in drawdown by 50% AND applying 55% tax to any resdual if they die before they can take it, thats some encouragment. Apart from the high costs one has to bear to do a pension in terms of "admin costs" etc etc etc I truly wish I had not done a pension and something else instead but was too busy to pay attention in those days so my own fault but young folk beware as by the time your time comes they will also have swept away the 25% tax free lump sum as well so do ISAs, property anything but a pension

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Yet another proposed raid by this government on pensioners. State pensions for women hoisted from age 60 to 66, suggestions that lump sums on pensions be taxed and now proposals that workers who have SAVED into a defined benefit scheme be gazumped because they change jobs! How many people stay in the same job for life? This government wants to change rules to suit themselves for workers who have a right to expect their contracted pension rights. Leave pensioners alone or pay the consequenses at the ballot box. I don't suppose MP's would be affected!! aND how do you propose the pension mess gets sorted out? DB schemes are unsustainable based on average ages....this 65 retirement age was not set when life expexctancy is as it is now....

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Apart from the Royal Mail pension they are bailing out from the long holiday them, are there any other plans to bail out the many hundreds of scheme left poor from the 80s?

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